Download 2015 Annual Report

Dear Fellow Shareholders,

Last year — in fact, the last decade — was an extraordinary time for our company. We
managed through the financial crisis and its turbulent aftermath while never losing
sight of the reason we are here: to serve our clients, our communities and countries
across the globe and, of course, to earn a fair profit for our shareholders. All the
while, we have been successfully executing our control and regulatory agenda and
continuing to invest in technology, infrastructure and talent — critical to the future of
the company. And each year, our company has been getting safer and stronger. We
continue to see exciting opportunities to invest for the future and to do more for our
clients and our communities — as well as continue to support the growth of economies
around the world.

I feel enormously blessed to work for this great company and with such talented
employees. Our management team and employees have built an exceptional
organization that is one of the most trusted and respected financial institutions in the
world. It has been their dedication, fortitude and perseverance that made this possible.
And it fills me with tremendous pride.

Our company earned a record $24.4 billion in net income on revenue of $96.6 billion
in 2015. In fact, we have delivered record results in the last five out of six years, and
we hope to continue to deliver in the future. Our financial results reflected strong
underlying performance across our businesses, and, importantly, we exceeded all our
major financial commitments — balance sheet optimization, capital deployment, global
systemically important bank (GSIB) surcharge reduction and expense cuts.

While we did produce record profits last year, our returns on tangible common equity
have been coming down, mostly due to higher capital requirements, higher control
costs and low interest rates. Our return on tangible common equity was 13% last
year, though we still believe that we will be able to achieve, over time, returns of
approximately 15%. We still don’t know the final capital rules, which could have
additional negative effects, but we do believe that the capital requirements eventually
will be offset by optimizing our use of capital and other precious resources, by realizing
market share gains due to some competitors leaving certain businesses, and by
implementing extensive cost efficiencies created by streamlining and digitizing our
processes. I will discuss some of these efforts later on in this letter.

We continued to deliver for our shareholders in 2015. The table above shows the
growth in tangible book value per share, which we believe is a conservative measure
of value. You can see that our tangible book value per share has grown far more than
that of the Standard & Poor’s 500 Index (S&P 500) in both time periods. For Bank
One shareholders since March 27, 2000, the stock has performed far better than most
financial companies and the S&P 500. We are not proud of the fact that our stock
performance has only equaled the S&P 500 since the JPMorgan Chase & Co. merger
with Bank One on July 1, 2004 and essentially over the last five to 10 years. On a
relative basis, though, JPMorgan Chase stock has far outperformed the S&P Financials
Index and, in fact, has been one of the best performers of all banks during this difficult
period. The details are shown on the table on the following page.

Many of the legal and regulatory issues that our company and the industry have faced
since the Great Recession have been resolved or are receding, which will allow the
strength and quality of our underlying business to more fully shine through.

In this letter, I will discuss the issues highlighted below — which describe many of
our successes and opportunities, as well as our challenges and responses. The main
sections are listed below, and, unlike prior years, we have organized much of this
letter around some of the key questions we have received from shareholders and other
interested parties.

OUR FRANCHISES ARE STRONG — AND GETTING STRONGER

When I travel around the world, and we do
business in over 100 countries, our clients –
who are big companies to small businesses,
investors and individuals, as well as countries
and their sovereign institutions – are
almost uniformly pleased with us. In fact,
most cities, states and countries want more
of JPMorgan Chase. They want us to bring
more of our resources – our financial capabilities
and technology, as well as our human
capital and expertise – to their communities.
While we do not know what the next few
years may bring, we are confident that the
needs of our clients around the world will
continue to grow and that our consistent
strategy of building for the future and being
there for our clients in good times and bad
has put us in very good stead. Whatever the
future brings, we will face it from a position
of strength and stability.

Because our business leaders do such a
good job describing their businesses (and
I strongly urge you to read their letters on
pages 52–72 in this Annual Report), it is
unnecessary for me to cover each in detail
here, other than to answer the following
critical questions.

How do you compare your franchises with your peers? What makes you believe your businesses
are strong?

Virtually all of our businesses are close to
best in class, in overhead ratios and, more
important, in return on equity (ROE), as
shown on the chart on page 8. Of even more
relevance, we have these strong ratios while
making sizable investments for the future
(which we have reported on extensively in
the past and you can read more about in the
CEO letters). It is easy to meet short-term
targets by skimping on investments for
the future, but that is not our approach for
building the business for the long term.

We are deeply aware that our clients
choose who they want to do business with
each and every day, and we are gratified
that we continue to earn our clients’ business
and their trust. If you are gaining
customers and market share, you have to
be doing something right. The chart below
shows that we have been meeting this goal
fairly consistently for 10 years.

Good businesses also deeply care about
improving customer satisfaction. As shown
above, you can see that our Chase customer
satisfaction score continues to rise. In
addition, our Commercial Banking satisfaction
score is among the highest in the
industry in terms of customer loyalty. In
Asset Management, where customers vote
with their wallet, JPMorgan Funds finished
second in long-term net flows among all
fund complexes.

Later on in this letter, I will describe our
fortress balance sheet and controls, as
well as the discipline we have around risk
management. I will also talk more about
our employees, some exciting new opportunities
– mostly driven by innovative
technologies – and our ongoing support
for our communities and our country. It is
critical that we do all of these things right
to maintain the strength of our company.

WE MUST AND WILL PROTECT OUR COMPANY AND THOSE WE SERVE

In support of our main mission – to serve
our clients and our communities – there
is nothing more important than to protect
our company so that we are strong and can
continue to be here for all of those who
count on us. We have taken many actions
that should give our shareholders, clients and
regulators comfort and demonstrate that our
company is rock solid.

The actions we have taken to strengthen
our company.

In this section, we describe the many
actions that we have taken to make our
company stronger and safer: our fortress
balance sheet with enhanced capital and
liquidity, our ability to survive extreme
stress of multiple types, our extensive
de-risking and simplification of the business,
and the building of fortress controls in
meeting far more stringent regulatory standards.
Taken together, these actions have
enabled us to make extraordinary progress
toward reducing and ultimately eliminating
the risk of JPMorgan Chase failing and
the cost of any failure being borne by the
American taxpayer or the U.S. economy.

You say you have a “fortress balance sheet.” What does that mean? Can you handle the
extreme stress that seems to happen around the world from time to time?

Nearly every year since the Great Recession,
we have improved virtually every measure of
financial strength, including many new ones.
It’s important to note as a starting point that
in the worst years of 2008 and 2009, JPMorgan
Chase did absolutely fine – we never lost
money, we continued to serve our clients,
and we had the wherewithal and capability
to buy and integrate Bear Stearns and
Washington Mutual. That said, we nonetheless
recognize that many Americans did
not do fine, and the financial crisis exposed
weaknesses in the mortgage market and
other areas. Later in this letter, I will also
describe what we are doing to strengthen
JPMorgan Chase and to help support the
entire economy.

The chart on page 12 shows many of the
measures of our financial strength – both
from the year preceding the crisis and our
improvement in the last year alone.

In addition, every year, the Federal Reserve puts
all large banks through a very severe and very
detailed stress test.

Among other things, last year’s stress test
assumed that unemployment would go to
10.1%, housing prices would fall 25%, equity
markets would decline by nearly 60%, real
gross domestic product (GDP) would decline
4.6%, credit spreads would widen dramatically
and oil prices would rise to $110 per
barrel. The stress test also assumed an instantaneous
global market shock, effectively far
worse than the one that happened in 2009,
causing large trading losses. It also assumed
the failure of the largest counterparty (this
is meant to capture the failure of the global
bank that you have the most extensive derivative
relationship with; e.g., a Lehman-type
event), which would cause additional losses.
The stress test assumed that banks would not
stop buying back stock – therefore depleting
their capital – and would continue to grow
dramatically. (Of course, growing dramatically
and buying back stock if your bank were
under stress would be irresponsible – and is
something we would never do.) Under this
assumed stress, the Federal Reserve estimates
that JPMorgan Chase would lose $55 billion pre-tax over a nine-quarter
period, an amount that we would easily
manage because of the strength of our
capital base. Remember, the Federal Reserve
stress test is not a forecast – it appropriately
assumes multiple levels of conservatism
and that very little mitigating action can be
taken. However, we believe that if the stress
scenario actually happened, we would incur
minimal losses over a cumulative nine quarter
period because of the extensive mitigating
actions that we would take. It bears
repeating that in the actual Great Recession,
which was not unlike last year’s stress test,
JPMorgan Chase never lost money in any
quarter and was quite profitable over the
nine-quarter period.

The stress test is extremely severe on credit.

The 2015 Comprehensive Capital Analysis
and Review (CCAR), or stress test, projected
credit losses over a nine-quarter period
that totaled approximately $50 billion for
JPMorgan Chase, or 6.4% of all our loans.
This is higher than what the actual cumulative credit losses were for all banks during
the Great Recession (they were 5.6%), and
our credit book today is materially better
than what we had at that time. The 2015
CCAR losses were even with the actual losses
for banks during the worst two years of the
Great Depression in the 1930s (6.4%).

The stress test is extremely severe on trading and
counterparty risk.

Our 2015 CCAR trading and counterparty
losses were $24 billion. We have two comparisons
that should give comfort that our losses
would never be this large.

First, recall what actually happened to us in
2008. In the worst quarter of 2008, we lost
$1.7 billion; for the entire year, we made $6.3
billion in trading revenue in the Investment
Bank, which included some modest losses
on the Lehman default (one of our largest
counterparties). The trading books are much
more conservative today than they were in
2008, and at that time, we were still paying
a considerable cost for assimilating and
de-risking Bear Stearns.

Second, we run hundreds of stress tests
of our own each week, across our global
trading operations, to ensure our ability
to withstand and survive many bad and
extreme scenarios. These scenarios include
events such as what happened in 2008, other
historically damaging events and also new
situations that might occur. We manage
our company so that even under the worst
market stress test conditions, we would
almost never bear a loss of more than $5
billion (remember, we earn approximately
$10 billion pre-tax, pre-provision each
quarter). We recognize that on rare occasions,
we could experience a negative significant
event that could lead to our having a
poor quarter. But we will be vigilant and will
never take such a high degree of risk that it
jeopardizes the health of our company and
our ability to continue to serve our clients.
This is a bedrock principle. Later in this
letter, I will also describe how we think about
idiosyncratic geopolitical risk.

And the capital we have to bear losses is
enormous.

We have an extraordinary amount of capital
to sustain us in the event of losses. It is
instructive to compare assumed extreme
losses against how much capital we have for
this purpose.

You can see in the table below that JPMorgan
Chase alone has enough loss absorbing
resources to bear all the losses, assumed by
CCAR, of the 31 largest banks in the United
States. Because of regulations and higher
capital, large banks in the United States are
far stronger. And even if any one bank might
fail, in my opinion, there is virtually no
chance of a domino effect. Our shareholders
should understand that while large banks do
significant business with each other, they do
not directly extend much credit to one other.
And when they trade derivatives, they mark to
market and post collateral to each other
every day.

Have you completed your major de-risking initiatives?

Yes, we have completed our major de-risking
initiatives, and some were pretty draconian.
In the chart below, I show just a few of the actions that we were willing to take to reduce
various forms of risk:

However, we are going to be extremely vigilant
to do more de-risking if we believe that
something creates additional legal, regulatory
or political risks. We regularly review all our
business activities and try to exceed – not
just meet – regulatory demands. We also now
ask our Legal Department to be on the search
for “emerging legal risks.” We try to think
differently; for example, we try to look at
legal risks not based on how the law is today
but based on how the law might be interpreted
differently 10 years from now. It is
perfectly reasonable for the legal and regulatory agencies to want to improve the quality
of the businesses they oversee, particularly
around important issues such as customer
protection. We also expect this refinement
frequently will be achieved through enforcement
actions as opposed to the adoption of
new rules that raise standards. For many
years, regulations generally were viewed as
being static. As we do everywhere else, we
should be striving for constant improvement
to stay ahead of the curve.

Do you think you now have “fortress controls” in place?

We are good and are getting better. The
intense efforts over the last few years across
our operating businesses – Risk, Finance,
Compliance, Legal and Audit – are now
yielding real results that will protect the
company in the future. We have reinforced
a culture of accountability for assuming risk
and have come a long way in self-identifying
and fixing shortcomings. Many new permanent
organizational structures have been put in place to ensure constant review and
continuous improvement. For example,
we now have a permanent Oversight &
Control Group. The group is charged with
enhancing the firm’s control environment
by looking within and across the lines of
business and corporate functions to identify
and remediate control issues. This function
enables us to detect control problems
more quickly, escalate issues promptly and
engage other stakeholders to understand common themes across the firm. We have
strengthened the Audit Department and risk
assessment throughout the firm, enhanced
data quality and controls, and also strengthened
permanent standing committees that
review new clients, new products and all
reputational issues.

The effort is enormous.

Since 2011, our total headcount directly associated
with Controls has gone from 24,000
people to 43,000 people, and our total annual
Controls spend has gone from $6 billion to
approximately $9 billion annually over that
same time period. We have more work to
do, but a strong and permanent foundation
is in place. Far more is spent on Controls if
you include the time and effort expended
by front-office personnel, committees and
reviews, as well as certain technology and
operations functions.

We have also made a very substantial amount
of progress in Anti-Money Laundering/Bank
Secrecy Act.

We deployed a new anti-money laundering
(AML) system, Mantas, which is a monitoring
platform for all global payment
transactions. It now is functioning across our
company and utilizes sophisticated algorithms
that are regularly enhanced based on
transactional experience. We review electronically
$105 trillion of gross payments
each month, and then, on average, 55,000
transactions are reviewed by humans after
algorithms identify any single transaction
as a potential issue. Following this effort,
we stopped doing business with 18,000
customers in 2015. We also are required to
file suspicious activity reports (SAR) with the
government on any suspicious activity. Last
year, we filed 180,000 SARs, and we estimate
that the industry as a whole files millions
each year. We understand how important
this activity is, not just to protect our
company but to help protect our country
from criminals and terrorists.

We exited or restricted approximately 500
foreign correspondent banking relationships
and tens of thousands of client relationships
to simplify our business and to reduce our
AML risk. The cost of doing proper AML/
KYC (Know Your Customer) diligence on a
client increased dramatically, making many
of these relationships immediately unprofitable.
But we did not exit simply due to profitability
– we could have maintained unprofitable
client relationships to be supportive of
countries around the world that are allies to
the United States. The real reason we exited
was often because of the extraordinary legal
risk if we were to make a mistake. In many of
these places, it simply is impossible to meet
the new requirements, and if you make just
one mistake, the regulatory and legal consequences
can be severe and disproportionate.

We also remediated 130,000 accounts for
KYC – across the Private Bank, Commercial
Bank and the Corporate & Investment Bank.
This exercise vastly improved our data, gave
us far more information on our clients and
also led to our exiting a small number of
client relationships. We will be vigilant on
onboarding and maintaining files on all new
clients in order to stay as far away as we can
from any client with unreasonable risk.

In all cases, we carefully tried to get the balance
right while treating customers fairly.

You can see that we are doing everything in
our power to meet and even exceed the spirit
and the letter of the law to avoid making
mistakes and the high cost – both monetarily
and to our reputation – that comes with
that. But we also tried to make sure that in
our quest to eliminate risk, we did not ask
a lot of good clients to exit. We hope that in
the future, the regulatory response to any
mistakes – if and when they happen, and
they will happen – will take into account the
extraordinary effort to get it right.

To protect the company and to meet standards of safety and soundness, don’t you have to earn a
fair profit? Many banks say that the cost of all the new rules makes this hard to do.

Having enough capital and liquidity, and
even the most solid fortress controls, doesn’t
make you completely safe and sound. Delivering
proper profit margins and maintaining
profitability through a normal credit cycle
also are important. A business does this by
having the appropriate business mix, making
good loans and managing expenses over time.

Clearly, some of the new rules create
expenses and burdens on our company.
Some of these expenses will eventually be
passed on to clients, but we have many ways
to manage our expenses. Simplifying our
business, streamlining our procedures, and
automating and digitizing processes, some of
which previously were being done effectively
by hand, all will bring relief. For example, many of the processes we implemented for
CCAR and AML/KYC had to be done quickly,
and many were effectively handled outside
our normal processes. Eventually, CCAR will
be embedded into our normal forecasting
and budgeting systems. And we are trying to
build the data collection part of KYC into a
utility that the entire industry can use – not
just for us and our peer group but, equally
important, for the client’s benefit (the client
would essentially only have to fill out one
form, which then could be used by all banks).
In addition, throughout the company, continually
creating straight-through processing,
online client service and other initiatives
will both improve the client experience and
decrease our costs.

What is all this talk of regulatory optimization, and don’t some of these things hurt clients?
When will you know the final rules?

In the new world, our company has approximately
20 new or significantly enhanced
balance sheet and liquidity-related regulatory
requirements – the most critical ones are the
GSIB capital surcharge, CCAR, the Liquidity
Coverage Ratio, the Supplementary Leverage
Ratio and Basel III capital. Banks must necessarily
optimize across these constraints to be
able to meet all their regulatory requirements
and, importantly, earn a profit. Every bank
has a different binding constraint, and, over
time, that constraint may change. Currently,
our overriding constraint is the GSIB capital
surcharge. Our shareholders should bear in
mind that the U.S. government requires a
GSIB capital surcharge that is double that
of our international competitors. And this
additional charge may ultimately put some
U.S. banks at a disadvantage vs. international
competitors. This is one reason why we
worked so hard to reduce the GSIB capital
surcharge – we do not want to be an outlier
in the long run because of it.

In the last year, we took some dramatic
actions to reduce our GSIB capital surcharge,
which we now have successfully reduced
from 4.5% to an estimate of 3.5%. These
steps included reducing non-operating
deposits by approximately $200 billion, level
3 assets by $22 billion and notional derivatives
amounts by $15 trillion. We did this
faster than we, or anyone, thought we could.
We still will be working to further reduce the
GSIB surcharge, but any reduction from this
point will take a few years.

Like us, most banks are modifying their
business models and client relationships to
accomplish their regulatory objectives. We
are doing this by managing our constraints
at the most granular level possible – by
product, client or business. Clearly, some
of these constraints, including GSIB and
CCAR, cannot be fully pushed down to
the client. Importantly, we are focused on
client-friendly execution – and we recognize
that these constraints are of no direct
concern to clients.

Unfortunately, some of the final rules around
capital are still not fully known at this time.

There are still several new rules coming that
also could impact our company – probably
the most important to us is how the GSIB
capital surcharge is incorporated into the
CCAR stress test. To date, we have managed
to what we do know. We believe that when
the final rules are made and known, we can
adjust to them in an appropriate way.

As banks change their business models to
adapt to the new world, some are exiting
certain products or regions. Market shares
will change, and both products and product
pricing will change over time. Therefore, we
think there will be a lot of adjustments to
make and tools to deploy so that we can still
serve our clients and earn a fair profit.

How do you manage geopolitical and country risks?

We operate in more than 100 countries
across the globe – and we are constantly
analyzing the geopolitical and country risks
that we face. The reason we operate in all
these countries is not simply because they
represent new markets where we can sell
our products. When we operate in a country,
we serve not only local institutions (governments
and sovereign institutions, banks and
corporations in that country) but also some
of those institutions and corporations outside
their country, along with multinationals
when they enter that country. This creates
a huge network effect. In all the countries
where we operate, approximately 40% of the
business is indigenous, 30% is outbound and
30% is inbound. All these institutions need
financing and advice (M&A, equity, debt and
loans), risk management (foreign exchange
and interest rates) and asset management
services (financial planning and investment
management), as well as operating services
(custody and cash management) in their
own countries and globally. It takes decades
to build these capabilities and relationships
– we cannot go in and out of a country on a
whim, based on a short-term feeling about
risk in that country. Therefore, we need plans
for the long term while carefully managing
current risk.

We carefully monitor risks — country by country.

For each country, we take a long-term view
of its growth potential across all our lines
of business. Each country is different, but,
for the most part, emerging and developing
markets will grow faster than developed
countries. And as they grow, the need for
our services grows dramatically. While we
have a future growth plan for each country,
we obviously can’t know with any certainty
everything that will happen or the timing
of recessions. No matter what the future
brings, we make sure that we can easily
bear the losses if we are wrong in our
assessments. For each material country,
we look at what our losses would be under
severe stress (not that different from the
Fed’s CCAR stress test). We manage so
that should the extreme situation occur,
we might lose money, but we could easily
handle the result. Below are a few examples
of how we manage risk while continuing to
serve clients in specific countries.

China. We believe it likely that, in 20–25 years,
China will be a developed nation, probably
housing 25% or more of the top 3,000 companies
globally. Going forward, we do not expect
China to enjoy the smooth, steady growth it
has had over the past 20 years. Reforming
inefficient state-owned enterprises, developing
healthy markets (like we have in the United
States) with full transparency and creating a
convertible currency where capital can move
freely will not be easy. There will be many
bumps in the road. We publicly disclose in
our Form 10-K that we have approximately
$19 billion of country exposure to China. We
run China through a severe stress test (essentially,
a major recession with massive defaults
and trading losses), and we estimate that our
losses in this scenario could be approximately
$4 billion. We do not expect this situation to happen, but if it did, we could easily handle
it. We manage our growth in China to try to
capture the long-term value (and, remember,
this will help a lot of our businesses outside of
China, too) and in a way that would enable us
to handle bad, unexpected outcomes. We don’t
mind having a bad quarter or two, but we will
not risk our company on any country. This is
how we manage in all countries in which we
have material activity.

Brazil. Brazil has had a deteriorating
economy, shrinking by 3%–4% over the last
year. In addition, as I write this letter, Brazil
faces political upheaval as its president is
being threatened with impeachment and its
former president is being indicted. Yet the
country has a strong judicial system, many
well-run companies, impressive universities,
peaceful neighbors and an enormous quantity
of natural resources. In Brazil, we have
banking relationships with more than 2,000
clients, approximately 450 multinational
corporations going into Brazil to do business
and approximately 50 Brazilian companies
going outbound. Our publicly disclosed exposure
to Brazil is approximately $11 billion,
but we think that in extreme stress, we might
lose $2 billion. In each of the last three years,
we actually have made money in Brazil. We
are not retreating – because the long-term
prospects are probably fine – and for decades
to come, Brazilians will appreciate our steadfastness
when they most needed it.

Argentina. Argentina is now a country
with incredible opportunity. In the 1920s,
its GDP per person was larger than that
of France, whereas today, it is barely one third
compared with France. Argentina is
an example of terrible public policy, often
adopted under the auspices of being good
for the people, that has resulted in extraordinary
damage to the economy. However, the
country has a highly educated population, a
new president who is making bold and intelligent
moves, peaceful neighbors and, like
Brazil, an abundance of natural resources.
You might be surprised to know that for
the past 10 years, in spite of the country’s
difficulties, JPMorgan Chase has made a
modest profit there by consistently serving
our clients and the country. This year, we
took a little additional risk in Argentina
with a special financing to help bring the
country some stability and help get it back
into the global markets. We are hoping that
Argentina can be an example to the world of
what can happen when a country has a good
leader who adopts good policy.

To give you more comfort, I want to remind
you that throughout all the international
crises over the last decade, we maintained
our businesses in many places that were
under stress – such as Spain, Italy, Greece,
Egypt, Portugal and Ireland. In almost every
case, we did not have any material problems,
and we are able to navigate every
issue and continue to serve all our clients.
Again, we hope this will put us in good
stead in these countries for decades. Later in
this letter, I will talk about another potentially
serious issue – Britain possibly leaving
the European Union.

How do you manage your interest rate exposure? Are you worried about negative interest rates
and the growing differences across countries?

No, we are not worried about negative
interest rates in the United States. For years,
this country has had fairly consistent job
growth and increasingly strong consumers
(home prices are up, and the consumer
balance sheet is in the best shape it’s ever
been in). Housing is in short supply, and household formation is going up, car sales are
at record levels, and we see that consumers
are spending the gas dividend. Companies
are financially sound – while some segments’
profits are down, companies have plenty of
cash. Nor are we worried about the diverging
interest rate policies around the world. While
they are a reasonable cause for concern, it is also natural that countries with different
growth rates and varying monetary and fiscal
policies will have different interest rates and
currency movements.

I am a little more concerned about the opposite:
seeing interest rates rise faster than
people expect. We hope rates will rise for a
good reason; i.e., strong growth in the United
States. Deflationary forces are receding –
the deflationary effects of a stronger U.S.
dollar plus low commodity and oil prices
will disappear. Wages appear to be going up,
and China seems to be stabilizing. Finally,
on a technical basis, the largest buyers of
U.S. Treasuries since the Great Recession
have been the U.S. Federal Reserve, countries adding to their foreign exchange reserve
(such as China) and U.S. commercial banks
(in order to meet liquidity requirements).
These three buyers of U.S. Treasuries will not
be there in the future. If we ever get a little
more consumer and business confidence,
that would increase the demand for credit,
as well as reduce the incentive and desire
of certain investors to buy U.S. Treasuries
because Treasuries are the “safe haven.” If
this scenario were to happen with interest
rates on 10-year Treasuries on the rise, the
result is unlikely to be as smooth as we all
might hope for.

Are you worried about liquidity in the marketplace? What does it mean for JPMorgan Chase,
its clients and the broader economy?

It is good to have healthy markets – it
sounds obvious, but it’s worth repeating.
There are markets in virtually everything
– from corn, soybeans and wheat to eggs,
chicken and pork to cotton, commodities
and even the weather. For some reason,
the debate about having healthy financial
markets has become less civil and rational.
Healthy financial markets allow investors
to buy cheaper and issuers to issue cheaper.
It is important to have liquidity in difficult
times in the financial markets because
investors and corporations often have a
greater and unexpected need for cash.

Liquidity has gotten worse and we have seen
extreme volatility and distortions in several
markets.

In the last year or two, we have seen
extreme volatility in the U.S. Treasury
market, the G10 foreign exchange markets
and the U.S. equity markets. We have also
seen more than normal volatility in global
credit markets. These violent market swings
are usually an indication of poor liquidity.
Another peculiar event in the market is technical
but important: U.S. Treasuries have
been selling at a discount to their maturity related
interest rate swaps.

One of the surprises is that these markets are
some of the most actively traded, liquid and
standardized in the world. The good news is
that the system is resilient enough to handle
the volatility. The bad news is that we don’t
completely understand why this is happening.

There are multiple reasons why this volatility may
be happening:

There are fewer market-makers in many
markets.

Market-makers hold less inventory – probably
due to the higher capital and liquidity
required to be held against trading assets.

Smaller sizes of trades being offered. It
is true that the bid-ask spreads are still
narrow but only if you are buying or selling
a small amount of securities.

Lower availability and higher cost of securities
financing (securities financing is very
short-term borrowing, fully and safely collateralized
by Treasuries and agency securities),
which often is used for normal money
market operations – movement of collateral,
short-term money market investing
and legitimate hedging activities. This is
clearly due to the higher cost of capital and
liquidity under the new capital rules.

Incomplete and sometimes confusing
rules around securitizations and mortgages.
We still have not finished all
the rules around securitizations and in
conjunction with far higher capital costs
against certain types of securitizations.
We have not had a healthy return to the
securitization market.

The requirement to report all trades.
This makes it much more difficult to buy
securities in quantity, particularly illiquid
securities, because the whole world knows
your positions. This has led to a greater
discount for almost all off-the-run securities
(these are the securities of an issuer
that are less regularly traded).

Possible structural issues; e.g., high frequency
trading. High-frequency
trading usually takes place in small increments
with most high-frequency traders
beginning and ending the day with very
little inventory. It appears that traders add
liquidity during the day in liquid markets,
but they mostly disappear in illiquid
markets. (I should point out that many
dealers also disappear in illiquid markets.)

All trading positions have capital, liquidity,
disclosure and Volcker Rule requirements –
and they cause high GSIB capital surcharges
and CCAR losses. It is virtually impossible
to figure out the cumulative effect of all the
requirements or what contributes to what.

In our opinion, lower liquidity and higher
volatility are here to stay.

One could reasonably argue that lower
liquidity and higher volatility are not necessarily
a bad thing. We may have had artificially
higher liquidity in the past, and we are
experiencing a return closer to normal. You
certainly could argue that if this is a cost of
a stronger financial system, it is a reasonable
trade off. Remember, the real cost is that
purchasers and issuers of securities will, over
time, simply pay more to buy or sell. In any
event, lower liquidity and higher volatility
are probably here to stay, and everyone will
just have to learn to live with them.

We really need to be prepared for the effects of
illiquidity when we have bad markets.

In bad markets, liquidity normally dries up
a bit – the risk is that it will disappear more
quickly. Many of the new rules are even
more procyclical than they were in the 2008
financial crisis. In addition, psychologically,
the Great Recession is still front and center in
people’s minds, and the instinct to run for the
exit may continue to be strong. The real risk
is that high volatility, rapidly dropping prices,
and the inability of certain investors and
issuers to raise money may not be isolated to
the financial markets. These may feed back
into the real economy as they did in 2008.
The trading markets are adjusting to the new
world. There are many non-bank participants
that are starting to fill in some of the gaps.
Even corporations are holding more cash and
liquidity to be more prepared for tough times.
So this is something to keep an eye on – but
not something to panic about.

In a capitalistic and competitive system,
we are completely supportive of competitors
trying to fill marketplace needs. One
warning, however: Non-bank lenders that
borrow from individuals and hedge funds
or that rely on asset-backed securities will be
unable to get all the funding they need in a
crisis. This is not a systemic issue because
they are still small in size, but it will affect
funding to individuals, small businesses and
some middle market companies.

JPMorgan Chase is well-positioned regardless.

It is important for you to know that we
are not overly worried about these issues
for JPMorgan Chase. We always try to be
prepared to handle violent markets. Our
actual trading businesses are very strong
(and it should give you some comfort to
know that in all the trading days over the last
three years, we only had losses on fewer than
20 days, which is extraordinary). Sometimes
wider spreads actually help market-makers,
and some repricing of balance sheet positions,
like repo, already have helped the
consistency of our results. As usual, we try to
be there for our clients – in good times and,
more important, in tough times.

Why are you making such a big deal about protecting customers’ data in your bank?

We need to protect our customers, their data and
our company.

We necessarily have a huge amount of data
about our customers because of underwriting,
credit card transactions and other
activities, and we use some of this data to
help serve our customers better (I’ll speak
more about big data later in this letter).
And we do extensive work to protect our
customers and their data – think cybersecurity,
fraud protection, etc. We always
start from the position that we want to be
customer friendly. One item that I think
warrants special attention is when our
customers want to allow outside parties to
have access to their bank accounts and their
bank account information. Our customers
have done this with payment companies,
aggregators, financial planners and others.
We want to be helpful, but we have a responsibility
to each of our customers, and we are
extremely concerned. Let me explain why:

When we all readily click “I agree” online
or on our mobile devices, allowing third party
access to our bank accounts and
financial information, it is fairly clear
that most of us have no idea what we
are agreeing to or how that information
might be used by a third party. We
have analyzed many of the contracts of
these third parties and have come to the
following conclusions:

Far more information is taken than the
third party needs in order to do its job.

Many third parties sell or trade information
in a way customers may not
understand, and the third parties,
quite often, are doing it for their own
economic benefit – not for the customer’s
benefit.

Often this is being done on a daily basis
for years after the customer signed up
for the services, which they may no
longer be using.

We simply are asking third parties to limit
themselves to what they need in order to
serve the customer and to let the customer
know exactly what information is being used
and why and how. In the future, instead
of giving a third party unlimited access to
information in any bank account, we hope to
build systems that allow us to “push” information
– and only that information agreed to
by the customer – to that third party.

Pushing specific information has another
benefit: Customers do not need to provide
their bank passcode. When customers
give out their bank passcode, they may
not realize that if a rogue employee at
an aggregator uses this passcode to steal
money from the customer’s account, the
customer, not the bank, is responsible for
any loss. You can rest assured that when
the bank is responsible for the loss, the
customer will be fully reimbursed. That
is not quite clear with many third parties.
This lack of clarity and transparency isn’t
fair or right.

Privacy is of the utmost importance. We
need to protect our customers and their data.
We are now actively working with all third
parties who are willing to work with us to set
up data sharing the right way.

WE ACTIVELY DEVELOP AND SUPPORT OUR EMPLOYEES

If you were able to travel the world with
me, to virtually all major cities and countries,
you would see firsthand your company
in action and the high quality and character
of our people. JPMorgan Chase and all its
predecessor companies have prided themselves
on doing “only first-class business and
in a first-class way.” Much of the capability
of this company resides in the knowledge,
expertise and relationships of our people. And
while we always try to bring in fresh talent
and new perspectives, we are proud that our
senior bankers have an average tenure of 15
years. This is testament to their experience,
and it means they know who to call anywhere
around the world to bring the full resources of
JPMorgan Chase to bear for our clients.

Traveling with me, you would see our senior
leadership team’s exceptional character,
culture and capability. You also would
probably notice that 20% of this leadership
group, over 250 teammates who manage
our businesses worldwide, is ethnically
diverse, and more than 30% are women.

Even though we believe that we have excellent
people and a strong, positive corporate
culture, we are always examining new ways
to improve.

How are you ensuring you have the right conduct and culture?

We reinforce our culture every chance we get.

Our Business Principles are at the forefront
of everything we do, and we need to make
these principles part of every major conversation
at the company – from the hiring,
onboarding and training of new recruits to
town halls and management meetings to how
we reward and incentivize our people. To
get better at this, last year we met with more
than 16,000 employees in 1,400 focus groups
around the world to get their feedback on
some of our challenges and what we can do
to strengthen and improve our culture.

That said, we acknowledge that we, at times,
have fallen short of the standards we have
set for ourselves. This year, the company
pleaded guilty to a single antitrust violation
as part of a settlement with the U.S.
Department of Justice related to foreign
exchange activities. The conduct underlying
the antitrust charge is principally attributable
to a single trader (who has since been
dismissed) and his coordination with traders
at other firms. As we said at the time, one lesson is that the conduct of a small group of
employees, or of even a single employee, can
reflect badly on all of us and can have significant
ramifications for the entire firm. That’s
why we must be ever vigilant in our commitment
to fortify our controls and enhance
our historically strong culture, continuing
to underscore that doing the right thing is
the responsibility of every employee at the
company. We all have an obligation to treat
our customers and clients fairly, to raise our
hand when we see something wrong or to
speak up about something that we should
improve – rather than just complain about it
or ignore it.

We have intensified training and development.

We are committed to properly training and
developing our people to enable them to
grow and succeed throughout their careers.
Our intent is to create effective leaders who
embody our Business Principles.

WE ARE HELPING OUR EMPLOYEES STAY HEALTHY

For us, having healthy employees is about more than improving
the firm’s bottom line; it’s about improving our employees’ lives
— and sometimes even saving lives. In 2015, we estimate that our
Health & Wellness Centers intervened in more than 100 potentially
life-threatening situations (e.g., urgent cardiac or respiratory
issues), and many more lives have been positively impacted by our
numerous wellness initiatives. We believe that healthy employees
are happy employees and that happy employees have more
rewarding lives both inside and outside the office.

Our commitment starts with offering comprehensive benefits
programs and policies that support our employees and their
families. To do this, JPMorgan Chase spent $1.1 billion in 2015
on medical benefits for employees based in the United States,
where our medical plan covers more than 190,000 employees,
spouses and partners. We tier our insurance subsidies so our
higher earners pay more, and our lower earners pay less — making
coverage appropriately affordable for all. We also contributed
nearly $100 million in 2015 for employees’ Medical Reimbursement
Accounts. And we have structured the plan in a way that preventative
care and screenings are paid for by the company.

Our benefits offering is supported by an extensive Wellness
Program, which is designed to empower employees to take charge
of their health. This includes health and wellness centers, health
assessments and screenings, health advocates, employee assistance
and emotional well-being programs, and physical activity
events. In the first year, only 36% of employees participated in
health assessments and wellness screenings, but in 2015, 74% of
our employees enrolled in the medical plan completed an assessment
and screening. Last year, our on-site wellness screenings
helped almost 14,000 employees detect a health risk or potentially
serious condition and directed them to see a physician for
follow-up. On another subject, we all know the value of eating lots
of vegetables, so we’ve made it a priority to offer an abundance
of healthy meal and snack options in our on-site cafeterias and
vending machines.

One of the flagships of our Wellness Program is our Health
& Wellness Center network. Twenty-seven of our 29 centers
in the United States are staffed with at least one doctor.
Nearly half of our employees have access to a local center,
and 56% of those with access walked in for a visit last year.
These facilities are vitally important to our people. In 2015,
these centers handled nearly 800 emergencies — including
the 100 potentially life-saving interventions, which I
mentioned above.

Maintaining a healthy lifestyle shouldn’t be a chore — it
should be fun. Last year, we held our second StepUp
challenge, a global competition that not only kept our
employees active, it supported five charities that feed the
hungry. More than 11,000 teams — a total of over 83,000
employees — added up their daily steps to take a virtual walk
around the world. They began their journey in New York City
and made virtual stops at seven of our office locations before
finishing in Sydney. Together, they logged a total of 28.2
billion steps, which resulted in the firm donating more than
$2 million to the five designated charities — enough to fund
millions of meals around the world.

JPMorgan Chase has 3,000 training
programs, but we realized that we lacked a
very important one: new manager development.
Prior to 2015, when our employees
became managers at the firm for the first
time, we basically left them on their own to
figure out their new responsibilities. In 2015,
we launched JPMorgan Chase’s Leadership
Edge, a firmwide program to train leaders
and develop management skills. These
training programs inculcate our leadership
with our values, teaching from case studies about business issues we have confronted
and mistakes we have made. In its inaugural
year, more than 4,500 managers attended
programs with 156 sessions held at 20+
global locations. During 2016, over 13,000
managers are expected to attend. I personally
take part in many of these sessions,
which are now being held next to our New
York City headquarters at The Pierpont
Leadership Center, a state-of-the-art flagship
training center that opened in January 2016.

How are you doing in your diversity efforts?

We are proud of our diversity … but we have more
to do.

Our women leaders represent more than
30% of our company’s senior leadership,
and they run major businesses – several
units on their own would be among Fortune
1000 companies. In addition to having three
women on our Operating Committee –
who run Asset Management, Finance and
Legal – some of our other businesses and
functions headed by women include Auto
Finance, Business Banking, U.S. Private Bank,
U.S. Mergers & Acquisitions, Global Equity
Capital Markets, Global Research, Regulatory
Affairs, Global Philanthropy, our U.S. branch
network and firmwide Marketing. I believe
that we have some of the best women leaders
in the corporate world globally.

To encourage diversity and inclusion in the
workplace, we have a number of Business
Resource Groups (BRG) across the company
to bring together members around common
interests, as well as foster networking and
camaraderie. Groups are defined by shared
affinities, including race and cultural heritage,
generation, gender, sexual orientation, military
status and professional role. For example,
some of our largest BRGs are Adelante for
Hispanic and Latino employees, Access Ability
for employees affected by a disability, AsPIRE
for Asian and Pacific Islander employees,
NextGen for early career professionals and
WIN, which focuses on women and their
career development. WIN has more than 20,000 members globally, and we have seen a
direct correlation between BRG membership
and increased promotion, mobility and retention
for those participants. On the facing page,
you can read more about some of the interesting
new programs we have rolled out for
employees in specific situations.

But there is one area where we simply have
not met the standards that JPMorgan Chase
sets for itself – and that is in increasing
African-American talent at the firm. While
we think our effort to attract and retain
African-American talent is as good as at
most other companies, it simply is not good
enough. Therefore, we set up a devoted effort
– as we did for hiring veterans (we’ve hired
10,000+ veterans) – to dramatically step up
our effort. We have launched Advancing
Black Leaders – a separately staffed and
managed initiative to better attract and
hire more African-American talent while
retaining, developing and advancing the
African-American talent we already have.
We are taking definitive steps to ensure
a successful outcome, including an incremental
$5 million investment, identifying a
full-time senior executive to drive the initiative,
tripling the number of scholarships
we offer to students in this community, and
launching bias-awareness training for all
executive directors and managing directors.
We hope that, over the years, this concerted
action will make a huge difference.

WE HAVE IMPLEMENTED A NUMBER OF POLICIES AND PROGRAMS TO MAKE JPMORGAN CHASE AN EVEN BETTER PLACE TO WORK

We want JPMorgan Chase to be considered the best place to
work — period. Below are some meaningful new programs
that will help us both attract talent and keep our best people.

Our ReEntry program. Our ReEntry program, now in its third
year, has been incredibly successful in helping individuals
who have taken a five- to 10-year or longer voluntary break
get back into the workforce. These are highly accomplished
professionals who have prior financial services experience
at or above the vice president level but who may need
help re-entering the corporate work environment. We offer
participants an 18-week fellowship to refresh their skills and
rebuild their network. It is a great way to bring outstanding,
experienced workers — who often are women — to JPMorgan
Chase to begin the second phase of their career. In three
years, 63 fellows have been brought into the program, and
50 of those fellows have been placed in full-time roles.

Maternity mentors. A common reason for taking a prolonged
break from work is the birth of a child. Becoming a parent is
both joyful and stressful so we want to do everything we can
to support our employees through this life-changing event.
Last year, we extended primary caregiver parental leave to
16 weeks, up from 12, and, this year, we are introducing a
firmwide maternity mentorship program. The program will
pair senior employees who have gone through the parental
leave process with those who are doing so for the first time.
It was piloted last year to overwhelmingly positive feedback,
with participants expressing deep appreciation for having a
colleague they could turn to for advice on everything from how to balance work with their new home dynamic to nursing
room protocol. Importantly, these senior mentors also provide
peace of mind around job security and how to manage the
entire transition, from preparing to leave, managing motherhood
during the leave and returning to work. In addition, this
program not only supports the employee going out on maternity
leave, but it also helps educate the employee’s manager
— on how to stay connected with the employee and ensure that
the leave is being handled with flexibility and sensitivity in order
to give the employee comfort that her role will be there upon
her return.

Work-life balance. We speak consistently about the need for our
employees to take care of their minds, their bodies and their
souls. This is the responsibility of each and every employee, but
there are also ways the firm can help. People frequently think
work-life balance refers to working parents; however, having an
effective balance is important for everyone’s well-being, including
our junior investment bankers. In the Investment Bank, we have
reduced weekend work to only essential execution work for all
employees. And the protected weekend program for analysts
and associates will remain in place and now is mandatory for all
at this level globally.

With all the new rules, committees and centralization, how can you fight bureaucracy
and complacency and keep morale high?

In the reality of our new world, centralization
of many critical functions is an absolute
requirement so that we can maintain
common standards across the company.
Of course, extreme centralization can lead
to stifling bureaucracy, less innovation
and, counterintuitively, sometimes a lack
of accountability on the part of those who
should have it. Our preference is to decentralize
when we can, but when we have
to centralize, we need to ensure we set
up a process that’s efficient, works for the
customer and respects the internal colleagues
who may have lost some local control.

Processes need to be re-engineered to be
efficient. So far, our managers have done a
great job adjusting to their new roles and,
in effect, getting the best of centralization
without its shortcomings. When, on occasion,
new procedures have slowed down our
response rate to the client, we quickly set
about re-engineering the process to make
it better. While we are going to meet and
exceed all rules and requirements, we need
to ensure that the process is not duplicative
or that rules are not misapplied. For example,
adhering to the new KYC rules took us up
to 10 days to onboard a client to our Private
Bank. But today, after re-engineering the
process, we are back down to three days,
incorporating enhanced controls. We all need
to recognize that good processes generally
are faster, cheaper and safer for all involved,
including the client.

People should not just accept bureaucracy — they
have the right to question processes and the
interpretation of rules. We have given all our
people the license to question whether what
we are doing is the right thing, including
the interpretation of rules and regulations.
Very often, in our desire to exceed regulatory
requirements and to avoid making a mistake, we have inaccurately interpreted a rule or
regulation and created our own excessive
bureaucracy. This is no one’s fault but our
own. Everyone should look to simplify and
seek out best practices, including asking our
regulators for guidance.

Committees need to be properly run — the chairperson
needs to take charge. We have asked all
our committees to become more efficient. For
example, we should ensure that pre-reading
materials are accurate and succinct. The
right people need to be in the room and very
rarely should the group exceed 12 people.
An issue should not be presented to multiple
committees when it could be dealt with in
just one committee (remember, we have new
business initiative approval committees,
credit committees, reputational risk committees,
capital governance committees, global
technology architecture committees and
hundreds of others).

We have asked that each chair of every
committee take charge – start meetings on
time, make sure people arrive prepared and
actually have read the pre-read documents,
eliminate frivolous conversation, force the
right questions to get to a decision, read the
riot act to someone behaving badly, maintain
a detailed follow-up list specifying who is
responsible for what and when, and ensure
the committee meets its obligations and time
commitments. And last, we encourage each
chair to ask the internal customers if he or
she is doing a good job for them.

We have maintained high morale. Our people
have embraced the new regulations and are
working hard to become the gold standard
in how we operate. We don’t spend any time
finger-pointing or scapegoating our own
people, looking for someone to blame purely
for the sake of doing so when we make a
mistake. And importantly, we have maintained
a culture that allows for mistakes.
Obviously, if someone violates our core principles,
that person should not be here. But as
you know, there are all types of mistakes.

We don’t want to be known as a company
that doesn’t give people a second chance
regardless of the circumstances. I remind all
our managers that some of these mistakes
will be made by our children, our spouses or our parents. Having a brutal, uncompromising
and unforgiving company will create
a terrible culture over time – and it will lead
to worse conduct not better.

How are you doing retaining key people?

Quite well, thank you. The Board of Directors
and I feel we have one of the best management
teams we have ever had. Many of our
investors who have spent a considerable
amount of time with our leaders – not just
with my direct reports but with the layer
of management below them – will tell you
how impressed they are with the depth and
breadth of our management team. Of course,
we have lost some people, but we wish them
well – we are proud of our alumni. One of
the negatives of being a good company is
that you do become a breeding ground for
talent and a recruiting target for competitors.
It is the job of our management team to keep
our key talent educated, engaged, motivated
and happy. Our people are so good that we
should say thank you every day.

Our company has stood the test of time
because we are building a strong culture and
are embedding our principles in everything
we do. Nothing is more important. That is
the pillar upon which all things rest – and it
is the foundation for a successful future.

WE ARE HERE TO SERVE OUR CLIENTS

Many of the new and exciting things we are
doing center on technology, including big
data and FinTech. We are continually innovating to serve our clients better, faster and
cheaper – year after year.

How do you view innovation, technology and FinTech? And have banks been good innovators?
Do you have economies of scale, and how are they benefiting your clients?

We have to be innovating all the time to
succeed. Investing in the future is critical
to our business and crucial for our growth.
Every year we ask, “Are we doing enough?
And should we be spending more?” We do
not cut back on “good spending” to meet
budget or earnings targets. We view this type
of cost cutting like an airline scaling back
on maintenance – it’s a bad idea. We spent
more than $9 billion last year on technology.
Importantly, 30% of this total amount was
spent on new investments for the future.
Today, we have more than 40,000 technologists,
from programmers and analysts to
systems engineers and application designers.
In addition, our resources include 31 data
centers, 67,000 physical servers globally,
27,920 databases and a global network that
operates smoothly for all our clients. There
are many new technologies that I will not
discuss here (think cloud, containerization
and virtualization) but which will make
every single part of this ecosystem increasingly
more efficient over time.

We need to innovate in both big and small ways.

Technology often comes in big waves – such
as computerization, the Internet and mobile
devices. However, plenty of important
innovation involves lots of little things that
are additive over time and make a product
or a service better or faster; for example,
simplifying online applications, improving
ATMs to do more (e.g., depositing checks)
and speeding up credit underwriting. Many
of these improvements were not just the
result of technology but the result of teams of people across Legal, Finance, Technology
and Client Coverage & Support working
together to understand, simplify and automate
processes.

One of our growing teams is our digital
group, including more than 400 professionals
focused on product and platform
design and innovation. In addition, the digital
technology organization has over 1,200
technologists that deliver digital solutions,
including frameworks, development and
architecture. This is an exceptional group,
but you can judge for yourself when you
read about some of the great projects being
rolled out.

We have thousands of such projects, but I
just want to give you a sample of some of
our current initiatives (I will talk extensively
later about investments in payments, in big
data and in our Investment Bank):

Consumer digital. We are intently focused
on delivering differentiated digital experiences
across our consumer businesses. For
example, we added new functionality to
our mobile app with account preview and
check viewing, and we redesigned chase.
com with simpler navigation and more
personalized experiences, making it easier
for our customers to bank and interact
with us when and how they want – via
smartphones, laptops and other mobile
devices. We now have nearly 23 million
active Chase Mobile customers, a 20%
increase over the prior year.

Digital and Global Wealth Management.
We will be investing approximately
$300 million over the next three years
in digital initiatives for Asset Management.
In Global Wealth Management, we
have modernized the online experience
for clients, enabled mobile access, and
launched a digital portal for access to our
research and analysis across all channels.
In addition, we are rolling out a user-friendly
and powerful planning tool that
our advisors can use with clients in real
time. We are also working on some great
new initiatives around digital wealth
management, which we will disclose
later this year.

Digital Commercial Banking. In Commercial
Banking, J.P. Morgan ACCESS delivers a
platform for clients to manage and pull
together all their Treasury activities in a
single, secure portal, which was ranked as
the #1 cash management portal in North
America by Greenwich Associates in 2014.
We continue to invest in digital enhancements,
releasing in 2015 our proprietary
and integrated mobile solution for remote
check deposits to help clients further
streamline their back-office reconciliations.
We are also investing in improving the
overall user experience around key items
such as entitlements (designating who can
make payments) and workflow, bringing
to our commercial digital platforms some
of the same enhancements we’ve brought
to our Consumer Banking sites.
While we make a huge effort to protect
our own company in terms of cybersecurity,
we try to help protect our clients from
cyber threats as well. We have extensive
fraud and malware detection capabilities
that significantly reduce wire fraud on
our customers. We’ve increased our client
cybersecurity education and awareness
programs, having communicated with
more than 11,000 corporate customers on
this topic and hosting nearly 50 cybersecurity
client events in 2015.

Small business digital. Small businesses are
important to Chase and to the communities
we serve. Small businesses have a
variety of banking needs, with approximately
60% of our customers using our
checking accounts or business credit cards.
And like our consumer client base, they
depend heavily on the technology that
already is offered in our Consumer business.
But we are very excited about two
new initiatives this year:

Our new brand “Chase for Business”
is not just a brand. Over time, we will
simplify forms, speed applications and
dramatically improve the customer
experience. This year or next, we
will roll out an online digital application
that allows a Business Banking
customer to sign up for the “triple
play” with one signature and in one
day. “Triple play” stands for a deposit
account, a business credit card and
Chase merchant processing – all at
once. Now that’s customer service!

Chase Business Quick Capital. Working
with a FinTech company called OnDeck,
we will be piloting a new working
capital product. The process will be
entirely digital, with approval and
funding generally received within one
day vs. the current process that can
take up to one month or more. The
loans will be Chase branded, retained
on our balance sheet, and subject to our
pricing and risk parameters.

Commercial Term Lending. In our Commercial
Term Lending business, our competitive
advantage is our process – we strive
to close commercial real estate loans
faster and more efficiently than the
industry average. That has allowed us
to drive $25 billion of loan growth since
2010, representing a five-year compound
average growth rate (CAGR) of 11%
and outpacing the industry CAGR of
4% while maintaining credit discipline.
Technological innovation will continue to
improve our process – later in the year,
we will be rolling out a proprietary loan
origination system that will set a new industry standard for closure speed and
customer service.

Yes, we are always improving our economies
of scale (to the ultimate benefit of our clients).
And yes, over time, banks have been enormous
innovators.

We commonly hear the comment that a bank
of our size cannot generate economies of
scale that benefit the client. And we often
hear people say that banks don’t innovate.
Neither of these comments is accurate. Below
I give a few examples of the large and small
innovations that we are working on:

ATMs. Today, ATMs are ubiquitous (we
have almost 18,000 ATMs, and our
customers love them). These ATMs have
gone from simple cash dispensers to
state-of-the-art service centers, allowing
customers to receive different denominations
of bills, accept deposited checks, pay
certain bills and access all their accounts.

The cost and ability to raise capital and buy
and sell securities. Thirty years ago, it cost,
on average, 15 cents to trade a share of
stock, 100 basis points to buy or sell a
corporate single-A bond and $200,000
to do a $100 million interest rate swap.
Today, it costs, on average, 1.5 cents to
trade a share of stock, 10 basis points to
buy a corporate single-A bond and $10,000
to do a $100 million interest rate swap.
And much can be done electronically,
increasingly on a mobile device and with
mostly straight-through processing, which
reduces error rates and operational costs – for both us and our clients. These capabilities
have dramatically reduced costs
to investors and issuers for capital raising
and securities transactions.

Cash management capabilities for corporations.
It is impossible to describe in a few
sentences what companies had to do to
move money around the world 40 years
ago. Today, people can move money globally
on mobile devices and immediately
convert it into almost any currency they
want. They have instant access to information,
and the cost is a fraction of what it
used to be.

FinTech and innovation have been going on my
entire career — it’s just faster today.

If you look at the banking business over
decades, it has always been a huge user of
new technologies. This has been going on
my entire career, though it does appear to be
accelerating and coming at us from many
different angles. While many FinTech firms
are good at utilizing new technologies, we
should recognize that they are very good
at analyzing and fixing business problems
and improving the customer experience (i.e.,
reducing pain points). Sometimes they find a
way to provide these services more efficiently
and in a less costly manner; for example,
cloud services. And sometimes these services
are not less expensive but provide a faster and
simplified experience that customers value
and are willing to pay for. You see this in
some FinTech lending and payment services.

It is unquestionable that FinTech will force
financial institutions to move more quickly,
and banks, regulators and government policy
will need to keep pace. Services will be rolled
out faster, and more of them will be executed
on a mobile device. FinTech has been great at
making it easier and often less expensive for
customers and will likely lead to many more
people, including more lower-income people,
joining the banking system in the United
States and abroad.

You can rest assured that we continually
and vigorously analyze the marketplace,
including FinTech companies. We want to
stay up to date and be extremely informed,
and we are always looking for ways to
improve what we do. We are perfectly
willing to compete by building capabilities
(we have large capabilities in-house) or to
collaborate by partnering.

Whether we compete or collaborate, we
try to do what is in the best interest of
the customer. We also partner with more
than 100 FinTech companies – just as we
have partnered over the past decade with hundreds of other technology providers. We
need to be very technologically competent
because we know that some of our competitors
will be very good. All businesses have
clear weak spots, and those weaknesses will
be – and should be – exploited by competitors.
This is how competitive markets work.
One of the areas we spend a lot of time
thinking and worrying about is payments.
Part of the payments system is based on
archaic, legacy architecture that is often
unfriendly to the customer.

How do you intend to win in payments, particularly with so many strong competitors — many
from Silicon Valley?

Right now, we are one of the biggest
payments companies in the world (across
credit and debit cards, merchant payments,
global wire transfers, etc.). But that has not
lulled us into a false sense of security – and
we know we need to continue to innovate
aggressively to grow and win in this area.
The trifecta of Chase Paymentech, ChaseNet
and Chase Pay, supported by significant
investment in innovation, has us very excited
and gives us a great opportunity to continue
to be one of the leading companies in the
payments business. Let me explain why.

Chase Paymentech. We already are one of the
largest merchant processors in the United
States (merchant processors provide those
little machines that you swipe your card
through at the point of sale in a store or
that process online payments). We are
quickly signing up large and medium-sized
merchants – this year alone, we signed
up some names that you all recognize,
including Starbucks, Chevron, Marriott,
Rite Aid and Cinemark. And I’ve already
described how the partnership with Business
Banking makes it easier for small businesses
to connect with Chase Paymentech.
In all these instances, we have simplified,
and, in some cases, offered better pricing,
as well as made sign up easier – exactly
what the merchants want. And very often it
comes with … ChaseNet.

ChaseNet. ChaseNet, through Visa, allows us
to offer a merchant different and cheaper
pricing, a streamlined contract and rules, and
enhanced data sharing, which can facilitate
sales and authorization rates. Again, these
are all things merchants want. (You can
see that we are trying hard to improve the
relationship between banks and merchants.)
We expect volume in ChaseNet to reach
approximately $50 billion in 2016 (up 100%
from 2015), as we have signed up and are
starting to onboard clients such as Starbucks,
Chevron, Marriott and Rite Aid. In conjunction
with Chase Paymentech and ChaseNet,
both of which allow us to offer merchants
great deals, we also can offer … Chase Pay.

Chase Pay. Chase Pay, our Chase-branded
digital wallet, is the digital equivalent to
using your debit or credit card. It will allow
you to pay online with a “Chase Pay” button
or in-store with your mobile phone. We also
hope to get the Chase Pay button inside
merchant apps. Chase Pay will offer lower
cost of payment, loyalty programs and fraud
liability protection to merchants, as well
as simple checkout, loyalty rewards and
account protection to consumers. As one great
example, Chase has signed a payments agreement
with Starbucks, which, we hope, will
drive Chase Pay adoption. Customers will be
able to use the Chase Pay mobile app at more than 7,500 company-operated Starbucks locations
in the United States and to reload a Starbucks
Card within the Starbucks mobile app
and on Starbucks.com. Finally, to make Chase
Pay even more attractive, we are building …
real-time person-to-person (P2P) payments.

Real-time P2P payments. In conjunction with
six partner banks, Chase is launching a P2P
solution with real-time funds availability. The
new P2P solution will securely make real-time
funds available through a single consumer facing
brand. Chase and the partner banks
represent 60% of all U.S. consumers with
mobile banking apps. We intend to keep P2P
free for consumers, and the network consortium
is open for all banks to join.

We are absolutely convinced that the trifecta
– Chase Paymentech, ChaseNet and Chase
Pay – will be dramatically better, cheaper and
safer for our customers and our merchants.
We also are convinced that the investments
we are making in Chase Paymentech and
ChaseNet will pay off handsomely. The investment in Chase Pay is not as certain. But
we think that the investment will be worth
it and that it will help drive more merchants
wanting to do business with us and more
customers wanting to open checking
accounts with us and use our credit cards.

I also want to mention one more payment
capability, this one for our corporate clients:

You always seem to be segmenting your businesses — how and why are you doing this?

We will always be segmenting our businesses
to become more knowledgeable about
and closer to the client. This segmentation
allows us to tailor our products and services
to better serve their needs. Below are some
examples of how and why we do this.

In Consumer Banking, we have the benefit of
really knowing our customers. We know
about their financial stability, interests,
where they live and their families. That data
can be a tremendous force in serving them.
By understanding customers well beyond a
demographic profile, we can better anticipate
what they need. Historically, we used
demographics and behavior to segment our
customers, but we increasingly take attitudes,
values and aspirations into consideration
to offer each customer more relevant and
personalized products, services and rewards.
As one important example, we hope to roll out an “Always On Offers” section for our
customers on chase.com, where they can
access all the products they qualify for at
any given time.

In Commercial Banking, we continue to develop
and enhance our Specialized Industries
coverage, which now serves a total of 15
distinct industries and approximately 9,000
clients across the United States, with eight
industries launched in the last five years.
Below are a few service examples taken from
these new industries:

Agricultural industry group. Not only do we
have specialized underwriting for clients
within this group, but we also can help
our clients navigate commodity price
cycles and seasonality, as well as provide
industry-specific credit and risk management
tools, such as interest rate and
commodity hedging.

Healthcare industry group. In addition to
delivering access to capital and other
financial services, we can help our
healthcare clients manage the constantly
changing regulatory environment and
adjust their businesses to comply with the
Patient Protection and Affordable Care
Act and other new regulations. In addition,
our web-based tools are making it
easier for healthcare providers to migrate
payments from expensive paper checks to
efficient electronic transactions.

Technology industry group. To serve our
technology clients, we have expanded
our coverage to include 30 bankers in
11 key markets, all highly aligned with
our Investment Banking team. With this model, we can provide investment
banking services, comprehensive payment
capabilities and international products to
address the needs of technology clients
through every stage of growth.

How and why do you use big data?

We have enormous quantities of data, and
we have always been data fanatics, using
big data responsibly in loan underwriting,
market-making, client selection, credit underwriting
and risk management, among other
areas. But comparing today’s big data with
yesterday’s old-style data is like the difference
between a mobile phone and a rotary
phone. Big data truly is powerful and can be
used extensively to improve our company.

To best utilize our data assets and spur
innovation, we have built our own extraordinary
in-house big data capabilities – we
think as good as any in Silicon Valley –
populated with more than 200 analysts and
data scientists, which we call Intelligent
Solutions. And we are starting to use these
capabilities across all our businesses. I want
to give you a sample of what we are doing –
and it is just the beginning:

Commercial Banking. We are using big data
in many ways in Commercial Banking.
One area is responsible prospecting. It
always was hard to get a proper list of
client prospects (i.e., get the prospect’s
working telephone number or email
address, get an accurate description of the
business and maybe get an introduction
to the decision maker at the company).
Using big data, we have uncovered and
qualified twice as many high-quality prospects,
and we are significantly more effective
in assuring that the best banker is
calling on the highest-potential prospects.
This has given us confidence in knowing
that if we hire more bankers, they can be
profitably deployed.

Consumer Banking. Within the Consumer
Bank, we use big data to improve underwriting,
deliver more targeted marketing
and analyze the root causes of customer
attrition. This will lead to more accounts,
higher marketing efficiencies, reduced
costs and happy customers.

Operational efficiencies. In the Corporate &
Investment Bank, big data is being used
to analyze errors, thereby improving
operational efficiencies. In one example, in
our Custody business, big data is helping
identify and explain the breaks and variances
in the calculation of net asset values
of funds, thereby reducing the operational
burden and improving client service.

Operational intelligence. Our technology
infrastructure creates an enormous
amount of machine data from which we gain valuable operational intelligence. This
information helps support the stability
and resiliency of our systems – enabling
us to identify little problems before they
become big problems.

Fraud security and surveillance. Needless to
say, these big data capabilities are being
used to decrease fraud, reduce risk in the
cyber world, and even monitor internal
systems to detect employee fraud and
bad behavior.

Why are you investing in sales and trading, as well as in your Investment Bank, when others
seem to be cutting back?

Trading is an absolutely critical function
in modern society – for investors large and
small and for corporations and governments.
As the world grows, the absolute need for
trading will increase globally as assets under
management, trade, corporate clients and
economies grow. We disclosed on Investor
Day that we continue to make a fair profit in
almost all our trading businesses despite the
higher costs and what is probably a permanent
reduction in volumes. While the business
will always be cyclical, we are convinced
that our clients will continue to need broad
services in all asset classes and that we have
the scale to be profitable through the cycle.

Sales and trading educates the world about
companies, securities and economies. Clients
will always need advice and the ability to
transact. This education also makes it easier
for corporations to sell their securities so
they can invest and grow. Much of the investment
we are making in sales and trading is
in technology, both to adjust to new regulations
and to make access to trading faster,
cheaper and safer than it has been in the
past. Across electronic trading, we have seen
a doubling of users and significant volume
increases of 175% across products in just the
last year. Below are a few examples:

Foreign exchange (FX). We continue to make
significant investments in FX e-trading and
our single-dealer platform. More than 95%
of our FX spot transactions are now done
electronically as the market has increasingly
shifted to electronic execution over the years.
We were also first to deliver FX trading on
mobile devices through our award-winning
eXecute application on the J.P. Morgan
Markets platform. Our continued investment
in the FX business, in which we process an
average of nearly 500,000 trades each day,
has propelled us to be a leader in the market.

Equities. In the last five years, on the back
of our investments in both technology
and people, our U.S. electronic cash equity
market share has nearly quadrupled. We
have also witnessed an increased straight through
processing rate – going from 70%
two years ago to 97% today.

Prime Brokerage. Our Prime Brokerage platform,
which was once a predominantly U.S.
operation, is now a top-tier global business
that continues to grow clients and balances.
Our international and DMA (direct market
access) electronic footprint has expanded
rapidly since 2012. Financing balances
are at all-time highs, with international
balances up more than 60% and synthetic
balances up more than 350%, simultaneously
reducing balance sheet consumption
and enhancing returns.

Rates trading. With the adoption of new
regulations, we anticipate that this market
will also continue to see increased volumes of
e-trading. As a result, we have developed automated
pricing systems that can price swaps in
a fraction of a second on electronic platforms.
Our SEF (swap execution facility) aggregator
allows clients to see the best price available to
them across the global market of interest rate
swaps and “click to trade” via our platform on
an agency basis. This helps our clients execute
transactions via any channel they desire, on
a principal or agent basis. Today, over 50% of
our U.S. dollar swaps volume is traded and
processed electronically.

Commodities. Leveraging our FX capabilities,
we have developed a complete electronic
offering in precious and base metals. We
are also extending the same capabilities to
energy products, where we have executed
our first electronic trade in oil. We plan to
further extend our e-trading capabilities
across the commodities markets, including
agricultural products.

Derivatives processing. The implementation
of our strategic over-the-counter derivatives
processing platform has promoted a 30%
increase in portfolio volume and a more
than 50% decrease in cost per trade in four
years. The platform now settles $2.2 trillion
of derivative notionals each day and has
been instrumental in improving operational delivery, control and client service, as demonstrated
by a more than 60% reduction in
cash settlement breaks and a 50% increase in
straight-through processing of equity derivatives
confirmations.

In all these cases, greater operational efficiencies
and higher straight-through processing
drive lower costs and lead to happy clients.

We also continue to make investments in
research and the coverage of clients. A couple
of examples will suffice:

Research platform. We continue our research
investments both in the quality of our
people and in the number of companies
and sectors we cover. In 2015, we expanded
our global equity research coverage to
more than 3,700 companies, the broadest
equity company coverage platform among
our competitors. With material increases
in the United States – we expanded sector
coverage in energy, banks, insurance and
industrials – and in China, we doubled our
A-share coverage.

Increased Investment Banking coverage. We are
actively recruiting and hiring senior bankers
in areas where we were either underpenetrated
or where there has been incremental
secular growth, such as energy, technology,
healthcare and Greater China.

Why are you still in the mortgage business?

That is a valid question. The mortgage business
can be volatile and has experienced
increasingly lower returns as new regulations
add both sizable costs and higher
capital requirements. In addition, it is not
just the cost of the new rules in origination
and servicing, it is the enormous complexity
of those new requirements that can lead
to problems and errors. It is now virtually
impossible not to make some mistakes – and
as you know, the price for making an error is
very high. So why do we want to stay in this
business? Here’s why:

Mortgages are important to our customers.
For most of our customers, their home is
the single largest purchase they will make
in their lifetime. More than that, it is an
emotional purchase – it is where they
are getting their start, raising a family or
maybe spending their retirement years.
As a bank that wants to build lifelong
relationships with its customers, we want
to be there for them at life’s most critical
junctures. Mortgages are important to our
customers, and we still believe that we
have the brand and scale to build a higher quality
and less volatile mortgage business.

Originations. We reduced our product set
from 37 to 15, we will complete the rollout
of a new originations system, and we will
continue to leverage digital channels to
make the application process easier for
our customers and more efficient for us.
In addition, we have dramatically reduced
Federal Housing Administration (FHA)
originations. Currently, it simply is too
costly and too risky to originate these
kinds of mortgages. Part of the risk comes
from the penalties that the government
charges if you make a mistake – and
part of the risk is because these types of
mortgages default frequently. And in the
new world, the cost of default servicing is
extraordinarily high.

Servicing. If we had our druthers, we
would never service a defaulted mortgage
again. We do not want to be in the business
of foreclosure because it is exceedingly painful for our customers, and it is
difficult, costly and painful to us and our
reputation. In part, by making fewer FHA
loans, we have helped reduce our foreclosure
inventory by more than 80%, and
we are negotiating arrangements with
Fannie Mae and Freddie Mac to have any
delinquent mortgages insured by them be
serviced by them.

Community Reinvestment Act and Fair
Lending. Finally, while making fewer FHA
loans can make it more difficult to meet
our Community Reinvestment Act and
Fair Lending obligations, we believe we
have solutions in place to responsibly
meet these obligations – both the more
subjective requirements and the quantitative
components – without unduly jeopardizing
our company.

WE HAVE ALWAYS SUPPORTED OUR COMMUNITIES

Most large companies are outstanding corporate
citizens – and they have been for a long
time. They compensate their people fairly,
they provide critical medical and retirement
plans, and they’re in the forefront of social
policy; for example, in staffing a diverse workforce, hiring veterans and effectively
training people for jobs. They, like all institutions,
are not perfect, but they try their best
to obey the spirit and the letter of the laws of
the land in which they operate.

You seem to be doing more and more to support your communities — how and why?

Since our founding in New York more than
200 years ago, JPMorgan Chase and its
predecessor banks have been leaders in their
communities. This is nothing new. For
example, in April 1906, J.P. Morgan & Co.
made Wall Street’s largest contribution
– $25,000 – to, as The New York Times
described it at the time, “extend practical
sympathy to the stricken people of San
Francisco.” This was two days after the
earthquake that destroyed 80% of the city
and killed 3,000 people. In February 2016, we
played much the same role when the firm
and our employees contributed hundreds of
thousands of dollars to pay for medical
services for children exposed to lead in the
Flint, Michigan, water crisis. And over the
last several years, we have given more than
$20 million to help in the aftermath of
natural disasters, from tsunamis in Asia to
Superstorm Sandy in the northeast United
States (and it was gratifying to see how
employees rallied with their time and with
the full resources of the firm to help).

In addition to our annual philanthropic
giving – which now totals over $200 million
a year – we are putting our resources, the
expertise of our business leaders, our data,
relationships and knowledge of global
markets into significant efforts aimed at
boosting economic growth and expanding
opportunity for those being left behind in
today’s economy. We have made long-term
global commitments to workforce readiness,
getting small businesses the capital
and support they need to grow, improving
consumer financial health and supporting
strong urban economies. You can read more
detail about these programs on pages 71-72.
And in the sidebars in this section, you can
hear directly from some of our partners
about our efforts. We think these initiatives
will make a significant contribution
to creating more economic opportunity for
more people around the world.

In particular, I want to tell you about an
exciting new community service program
we have developed that is capitalizing on our
most important resource – the talent of our
people. The Service Corps program recruits
top-performing employees from around the
world to put their skills and expertise to
work on behalf of nonprofit partners that
are helping to build stronger communities.
This program, combining leadership development
with philanthropic purpose, started
small in Brazil, grew into the Detroit Service
Corps as part of our investment there, and
has now spread across the globe, with projects
in Africa, Asia, and North and South America. Service Corps employees work
on-site with nonprofits on projects that last
three weeks. In total, 64 people have been
involved in 22 projects. And this program
will continue to grow in the coming years
to other domestic and international locations.
While supporting our nonprofit
partners to deliver on their mission, our
employees also gain enormous satisfaction
and sense of purpose from the opportunity
to help. In addition, as they travel across
the globe and interact with their peers,
they develop a great, permanent camaraderie
that helps unite our employees from
around the world in a commitment to
make a difference in our communities.

PARTNERSHIP IN DETROIT
by Mayor Mike Duggan

Detroit is coming back. After years of challenges, we are
seeing signs of real progress in our neighborhoods and
business districts.

Two years into our administration, we’ve brought back fiscal
discipline and have balanced the city’s budget for the first time
in more than a decade. We’ve installed 61,000 new LED streetlights
in our neighborhoods. Buses are running on schedule
for the first time in 20 years and are serving 100,000 more
riders each week. We’ve taken down nearly 8,000 blighted
homes and, as a result, are seeing double-digit property value
increases across the majority of the city. Perhaps most important,
8,000 more Detroiters are working today than two years
ago, thanks to efforts to attract new investment and develop
our workforce.

None of these positive steps would have been possible without
the partnerships we’ve established in Washington, D.C., in
our state capital of Lansing, with the Detroit City Council, and
especially with our residents and partners in the business and
philanthropic communities.

When our friends at JPMorgan Chase started thinking about
making a $100 million investment in Detroit, they started off
by asking about our priorities for the city’s recovery — not just
mine but those of our community and philanthropic leaders
as well. Today, we can see the impact of JPMorgan Chase’s
commitment to Detroit in many places — in the opening of a
new grocery store in the Westside’s Harmony Village neighborhood,
in the minority-led small businesses that are getting
much-needed capital from the new Entrepreneurs of Color Fund
and in the map of Detroit’s workforce system that is helping
us prepare Detroiters for the new jobs coming to the city.
JPMorgan Chase is bringing its data, expertise and talent to this
town in so many ways — assets that are just as important as
money in boosting our recovery.

The partnerships JPMorgan Chase saw at work in Detroit helped
give the firm confidence to invest so significantly in our city.
And because we have this fine company at the table, we now
have other companies coming to our city looking to contribute
and invest in Detroit and its residents.

We still have a long way to go. But with great partners like
JPMorgan Chase, we are creating a turnaround that is benefiting
all Detroiters and can be a model for other large cities
facing similar challenges.

COMMITMENT TO OUR VETS
by Stan McChrystal, Retired General, U.S. Army

In early 2011, two employees of JPMorgan Chase came to
wintry New Haven, Connecticut, to talk about veterans.
Specifically, they told me that Jamie Dimon felt the bank
could, and should, do more to help the many veterans
returning from service — many who were in Iraq and
Afghanistan — take their rightful place in civilian society.
Since 9/11, the military had enjoyed tremendous support
from the American people, but seemingly intractable
problems of reintegration, particularly challenges with
meaningful employment, haunted an embarrassingly large
number of former warriors and their families.

I listened with interest and no small amount of cautious
skepticism. I was aware of countless programs initiated
with the best of intentions that soon became more talk
than action and was worried this might be the same. The
JPMorgan Chase people asked if I thought the bank should
create a program to help veterans find employment and if
the bank did start such a program, would I join the advisory
council for it.

I thought for a moment and then responded: “If Jamie
is seriously willing to commit the bank to the effort,” I
replied, “it’s the right thing to do, and I’m in. If not, there
are other, far less ambitious ways to offer the bank’s help
for veterans.” As we talked further, they convinced me that
Jamie, and the full energy that JPMorgan Chase could bring,
would be behind the effort.

That was almost five years ago, and JPMorgan Chase has
surpassed my every hope and expectation. By committing
full-time talent and including the personal involvement of
senior leadership, the firm has been the strongest force
in veterans’ employment in America. The Veteran Jobs
Mission program has not only implemented truly cutting edge
programs inside the bank to recruit, train, mentor
and develop veterans — resulting in an increase of more
than 10,000 veterans within the bank since 2011 — but the
program also has demonstrated the power of commitment.
An impressive number of American businesses have set and
met employment goals (to date, over 300,000 veterans have
been hired collectively, with a goal of hiring 1 million) that
would have been considered unattainable at the start.

CREATING CAREER-FOCUSED EDUCATION
by Freeman A. Hrabowski III, President of the University of Maryland, Baltimore County

Too many people are left out of work or are stuck in low-wage,
low-skill jobs without a path to meaningful employment and the
chance to get ahead. Among young people, this truly is a national
tragedy: More than 5 million young Americans, including one in
five African-American and one in six Latino youths, are neither
attending school nor working. JPMorgan Chase’s New Skills for
Youth initiative is an important example of educators and business
leaders partnering to equip young people with the skills and
experience to be career ready.

The social and economic hurdles faced by young people of color and
those who come from low-income families have been exacerbated
by the growing crisis of high inner city unemployment and low high
school graduation rates. With too many young people marginalized,
economic growth slows, and social challenges increase. The public
and private sectors must work together to change this.

Educators need to emphasize both college and career readiness.
They need to recognize that there is growing demand for technically
trained, middle-skill workers — from robotics technicians to licensed
practical nurses — and better align what they teach with the talent
needs of employers. At the same time, business leaders need to
support the education system as it strives to teach today’s skills and
help students develop into critical thinkers.

A bachelor’s degree is as important as ever, and universities must
do more to support students of all backgrounds who arrive on our
campuses. However, we need to recognize that not all college and
career pathways include pursuing a four-year degree immediately,
and we need to eliminate the stigma attached to alternate paths.
High-quality, rigorous career and technical education programs
can connect people to high-skill, well-paying jobs — and they
don’t preclude earning a four-year degree down the road. Classes
dedicated to robotics, medical science, mechanics and coding build
skills that employers desperately need. They also prepare students
to land great jobs.

Recent education reforms are making progress, but we still need
greater focus on preparing young people, from all income levels,
with the skills and experiences to be college and career ready.
The public and private sectors need to forge deeper relationships
and make greater investments in developing and expanding
effective models of career-focused education that are aligned
with the needs of emerging industries. This is an investment
not only in growing our economy but also in providing more of
our young people with a tangible path out of poverty and a real
chance at economic success.

A SAFE, STRONG BANKING INDUSTRY IS ABSOLUTELY
CRITICAL TO A COUNTRY’S SUCCESS — BANKS’ ROLES HAVE CHANGED, BUT THEY WILL NEVER BE A UTILITY

For the people of a country to thrive, you
need a successful economy and markets. For
an economy to be successful, it is an absolute
necessity to have a healthy and successful
banking system. The United States has a
large, vibrant financial system, from asset
managers and private equity sponsors to
hedge funds, non-banks, venture capitalists,
public and private market participants,
small to large investors and banks. Banks are
at the core of the system. They educate the
world about companies and markets, they
syndicate credit and market risk, they hold
and move money and assets, and they necessarily
create discipline among borrowers and
transparency in the market. To do this well,
America needs all different kinds of financial
institutions and all different kinds of banks –
large and small.

Does the United States really need large banks?

There is a great need for the services of all
banks, from large global banks to smaller
regional and community banks. That said,
our large, global Corporate & Investment
Bank does things that regional and community
banks simply cannot do. We offer
unique capabilities to large corporations,
large investors and governments, including
federal institutions, states and cities.

Only large banks can bank large institutions.

Of the 26 million businesses in the United
States, only 4,000 are public companies.
While accounting for less than 0.02% of all
firms, these companies represent one-third
of private sector employment and almost
half of the total $2.3 trillion of business
capital expenditures. And most are multinationals
doing business in many countries
around the world. In addition to corporations,
governments and government institutions
– such as central banks and sovereign
wealth funds – need financial services.
The financial needs of all these institutions
are extraordinary. We provide many of
the services they require. For example, we
essentially maintain checking accounts for
these institutions in many countries and
currencies. We provide extensive credit lines
or raise capital for these clients, often in
multiple jurisdictions and in multiple currencies.
On an average day, JPMorgan Chase moves approximately $5 trillion for these
types of institutions, raises or lends $6 billion
of capital for these institutions, and buys or
sells approximately $1.5 trillion of securities
to serve investors and issuers. We do all this
efficiently and safely for our clients. In addition,
as a firm, we spend approximately $700
million a year on research so that we can
educate investors, institutions and governments
about economies, markets and companies.
For countries, we raised $60 billion
of capital in 2015. We help these nations
develop their capital markets, get ratings
from ratings agencies and, in general, expand
their knowledge. The fact is that almost
everything we do is because clients want and
need our various services.

Put “large” in context.

While we are a large bank, it might surprise
you to know two facts: (1) The assets of all
banks in the United States are a much smaller
part of the country’s economy, relatively, than
in most other large, developed countries; and
(2) America’s top five banks by assets are
smaller, relatively, to total banking assets in
America than in most other large, developed
countries. As shown in the following charts,
this framework means banks in the United
States are less consolidated.

Our size and our diversification make us stronger.

Our large and diversified earnings streams
and good margins create a strong base of
earnings that can withstand many different
crises. Stock analysts have pointed out that
JPMorgan Chase has among the lowest
earnings volatility and revenue volatility
among all banks. This strength is what
allows us to invest in countries to support
our clients and to have the staying power to
survive tough times. We are a port of safety
in almost any storm.

Finally, our size gives us the ability to make
large and innovative investments that are
often needed to create new products and
services or to improve our efficiency. The
ultimate beneficiary of all this is our clients.

Community banks are critical to the country —
large banks provide essential services to them.
(I prepared this section initially as an op-ed
article, but I’d like you to see it in total.)

Not long ago, I read some commentary
excoriating big banks written by the CEO
of a regional bank. The grievances weren’t
new or surprising – in the current climate,
one doesn’t have to look far to find someone
attacking large financial institutions. But I
recognized this particular bank as a client
of ours. So I did some digging. It turns out
that our firms have a relationship that goes
back many years and spans a broad range of
services. And it struck me how powerful the incentive is, in today’s heated public dialogue,
to frame issues as a winner-take-all fight
between opposing interests: big vs. small.
Main Street vs. Wall Street. It is a simple
narrative, and while banks of all sizes make
mistakes, certainly a key lesson of the crisis
is that mistakes at the largest institutions can
impact the broader financial system.

But, as is often the case, reality tells a deeper
story, and the U.S. financial services industry
does not conform to simple narratives. It is a
complex ecosystem that depends on diverse
business models co-existing because there
is no other way to effectively serve America’s
vast array of customers and clients. A
healthy banking system depends on institutions
of all sizes to drive innovation, build
and support our financial infrastructure, and
provide the essential services that support
the U.S. economy and allow it to thrive.

In our system, smaller regional and community
banks play an indispensable role. These
institutions sit close to the communities
they serve. Their highest-ranking corporate
officers live in the same neighborhoods as
their clients. They are able to forge deep and
long-standing relationships and bring a keen
knowledge of the local economy and culture.
They frequently are able to provide high touch
and specialized banking services, given
their unique connection to their communities.

Large banks such as JPMorgan Chase also
have a strong local presence. We are proud
to have branches and offices all across
the country and to have the privilege of
being woven into communities large and
small. But we respect the fact that for
some customers, there is no substitute
for a locally based bank and that in some
markets, a locally based lender is the best
fit for the needs of the community.

Having said that, these very same regional
and community banks depend on large
banks such as ours to make their service
offerings possible. First, large banks offer
vital correspondent banking services for
smaller institutions. These services include
distributing and collecting physical cash,
processing checks and clearing international
payments. JPMorgan Chase alone extends
such services to 339 small banks and 10
corporate credit unions across the country.
Last year, we provided these institutions with
$4.7 billion in intraday credit to facilitate
cash management activities and processed
$7.6 trillion in payments/receivables.

Large banks also enable community banks to
provide traditional mortgages by purchasing
the mortgages that smaller banks originate,
selling the loans to the agencies (e.g., Fannie
Mae) or capital markets and continuing to
service the borrower. In 2015, JPMorgan
Chase purchased $10.4 billion in such residential
loans from 165 banks nationwide.

This is a story of symbiosis among our banks
rather than a binary choice between big and
small. Yes, all banks are competitors in the
marketplace. But marketplace competition
is not zero-sum. In banking, your competitor
can also be your customer. Large banks
ultimately would be diminished if regional
and community banks were weakened, and,
just as surely, those smaller institutions
would lose out if America’s large banks were
hobbled. We require a system that serves
the needs of all Americans, from customers
getting their first mortgage to farmers and
small business owners to our largest multinational
companies.

America faces enough real challenges
without inventing conflict where none
need exist. Rather, banks of all sizes do
themselves and their stakeholders better
service by acknowledging the specific value
different types of institutions offer. Then we
all can get on with the business of serving
our distinctive roles in strengthening the
economy, our communities and our country.

Banks cannot be utilities.

Utilities are monopolies; i.e., generally only
one company is operating in a market. And
because of that, prices and returns are regulated.
Banks do not have the same relationship
with their clients as most other companies
do. When a customer walks into a store
and wants to buy an item, the store sells it.
By contrast, very often a bank needs to turn
a customer down; for example, in connection
with a credit card or a loan. Responsible
lending is good, but irresponsible lending
is bad for the economy and for the client
(we clearly experienced this in the Great
Recession). Banks are more like partners
with their clients – and they are often active
participants in their clients’ financial affairs.
They frequently are in the position where
they have to insist that clients operate with
discipline – by asking for collateral, putting covenants in place or forcing the sale of
assets. This does not always create friends,
but it is critical for appropriate lending and
the proper functioning of markets. Banks
have to continuously make judgments on
risk, and appropriately price for it, and they
have to do this while competing for a client’s
business. There is nothing about banking
that remotely resembles a utility.

America’s financial system is the finest the world
has ever seen — let’s ensure it stays that way.

The position of America’s leading banks
is like many other U.S. industries – they
are among the global leaders. If we are not
allowed to compete, we will become less
diversified and less efficient. I do not want
any American to look back in 20 years and
try to figure out how and why America’s
banks lost the leadership position in financial
services. If not us, it will be someone else and likely a Chinese bank. Today, many
Chinese banks already are larger than we
are, and they continue to grow rapidly. They
are ambitious, they are supported by their
government and they have a competitive
reason to go global – the Chinese banks
are following and supporting their Chinese
companies with the financial services that
are required to expand abroad.

Not only are America’s largest banks global
leaders, but they help set global standards for
financial markets, companies, and even countries
and controls (such as anti-money laundering).
Finally, banks bring huge resources
– financial and knowledge – to America’s
major flagship companies and investors,
thereby helping them maintain their global
leadership positions.

Why do you say that banks need to be steadfast and always there for their clients — doesn’t
that always put you in the middle of the storm?

Yes, to an extent. When an economy
weakens, banks will see it in lower business
volumes and higher credit losses. Of
course, we want to manage this carefully,
but it is part of the cost of doing business.
Building a banking business takes decades
of training bankers, nurturing relationships,
opening branches and developing
the proper technology. It is not like buying
or selling a stock. Clients, from consumers
to countries, expect you to be there in both
good times and the toughest of times. Banks
and their services are often the essential
lifeblood to their clients. Therefore, it is part
of the cost of doing business to manage
through the cycles.

JPMorgan Chase consistently supports
consumers, businesses and communities in
both good times and the toughest of times. In
2015, the firm provided $22 billion of credit
to U.S. small businesses, which allowed them
to develop new products, expand operations
and hire more workers; $168 billion of credit
to Commercial and Middle Market clients; $233 billion of credit to consumers; more
than $68 billion of credit or capital raised for
nonprofit and government entities, including
states, municipalities, hospitals and universities;
and $1.4 trillion of credit or capital raised
for corporations. In total, we extended credit
and raised capital of more than $2 trillion for
our clients.

Banks were there for their clients, particularly
when the capital markets were not — we need this
to continue.

The public markets, even though they are
populated with a lot of very bright and
talented people, are surprisingly fickle. The
psychology and wisdom of crowds are not
always rational, and they are very impersonal.
People who buy and sell securities
do not have a moral obligation to provide
credit to clients. This is when banks’ longterm
relationships and fairly consistent pricing and credit offerings are needed the
most. The chart below shows how banks
continued to be there for their clients as the
markets were not.

Corporations get the vital credit they need
by issuing securities, including commercial
paper, or by borrowing from banks. You can
see in the chart below the dramatic drop in
the issuance of securities and commercial
paper once the financial crisis hit. Commercial
paper outstanding alone dropped by
$1 trillion, starving companies in desperate
need of cash. You can see that bank loans
outstanding, for the most part, were steady
and consistent. This means that banks continued to renew or roll over credit to their
clients – small, medium and large – when it
was needed the most.

This will be a little bit harder to do in
the future because capital, liquidity and
accounting rules are essentially more procyclical
than they were in the past. We estimate
that if we were to enter a very difficult
market, such as 2008, our capital needs could
increase by 10%. Despite the market need for
credit, banks would be in a position where,
all things being equal, they would need to
reduce the credit extended to maintain their
own strong capital positions.

Will banks ever regain a position of trust? How will this be done?

Most banks actually are trusted by their
clients, but generically, they are not. This
dichotomy also is true with politicians,
lawyers and the media – people trust the
individuals they know, but when it comes
to whether people trust them as a group,
they do not. We believe that the only way to
be restored to a position of trust is to earn
it every day in every community and with
every client.

The reality is that banks, because of the disciplined
role they sometimes have to play and
the need to say no in some instances, will not
always be the best of friends with some of
their clients. But banks still need to discharge
that responsibility while continuing to regain
a position of trust in society. There is no easy,
simple answer other than:

Admitting to mistakes is good, fixing
them is better and learning from them is
essential.

Make it easy for customers to deal with you
– particularly when they have problems.

Work with customers who are struggling –
both individuals and companies.

Focus on the customer and treat all clients
the way you would want to be treated.

Be great citizens in the community.
Establish strong relationships with governments
and civic society.Focus on the customer and treat all clients
the way you would want to be treated.

Treat regulators like full partners – and
accept that you will not always agree.
When they make a change in regulations,
even ones you don’t like, accept them and
move on.

As an industry, make fewer mistakes and
behave better – the bad behavior of one
individual reverberates and affects the
entire industry.

Finally, strong regulators and stronger
standards for banks must ultimately mean
that banks are meeting more rigorous standards.
Every bank is doing everything in its
power to meet regulatory standards. It has
been eight years since the financial crisis
and six years since Dodd-Frank. Regulators
should take more credit for the extraordinary
amount that has been accomplished
and should state this clearly to the American
public. This should help improve consumer
confidence in the banking system – and
in the economy in general. Consumer and
business confidence is the secret sauce for a
healthy economy. It is free, and it would be
good to sprinkle a bit more of it around.

Are you and your regulators thinking more comprehensively and in a forward-looking way to
play a role in helping to accelerate global growth?

By any reasonable measure, the financial
system is unquestionably stronger, and regulators
deserve a lot of credit for this. But it
also is true that thousands of rules, regulations
and requirements were made – and
needed to be made – quickly. The political
and regulatory side wanted it done swiftly
to ensure that events that happened in the
Great Recession would never happen again.
But now is the time when we can and should
look at everything more deliberately and
assess whether recent reforms have generated
unintended consequences that merit
attention.

Some people speak of regulation like it is a
simple, binary trade off – a stronger system
or slower growth or vice versa. We believe
that many times you can come up with
regulations that do both – create a stronger
system and enhance growth.

There will be a time to comprehensively review,
coordinate and modify regulations to ensure
maximum safety, create more efficiency and
accelerate economic growth.

Every major piece of legislation in the United
States that was large and complex has been
revisited at some point with the intention of
making it better. The political time for this
is not now, but we should do so for banking
regulations someday. We are not looking
to rewrite or to start over at all – just some
modifications that make sense. Here are a
few specific examples:

Liquidity. Regulators could give themselves
more tools for adjusting liquidity
to accommodate market needs. This could
be done with modest changes that could
actually ameliorate the procyclical nature
of the current rules and, in my opinion,
enhance safety and soundness and
improve the economy.

Mortgages. Finishing and simplifying mortgage
rules around origination, servicing,
capital requirements and securitizations
would help create a more active mortgage
market at a lower cost to customers and,
again, at no risk to safety and soundness
if done right. This, too, would be a plus to
consumers and the economy.

Capital rules. Without reducing total
capital levels, capital rules could be
modified to be less procyclical, which
could serve to both dampen a bubble and
soften a bust. This alone could boost the
economy and reduce overall economic
risk. There are also some rules – for
example, requiring that capital be held
against a deposit at the Federal Reserve –
that distort the normal functioning of the
market. These could be eliminated with
no risk to safety and soundness unless
you think the Fed is a risky investment. Finally, finishing the capital rules for
banks will remove one additional drag on
the banks and allow for more consistent
capital planning. This would also help to
improve confidence in the banks and, by
extension, investor confidence.

Increased coordination among regulators.
Having five, six or seven regulators
involved in every issue does make things
more complicated, expensive and inefficient,
not just for banks but for regulators,
too. This slows policymaking and
rulemaking and is one reason why many
of the rules still have not been completed.
One of the lessons we have all learned is
that policymakers need to move quickly
in a crisis. While everyone has worked
hard to be more coordinated, far more
can be done.

Be more forward looking. This is already
happening. As banks are catching up on
regulatory demands, the pace of change,
while still rapid, is slowing. This sets the
stage for both banks and regulators to be
able to devote more resources to increasingly
critical issues, including cybersecurity,
digital services, data protection,
FinTech and emerging risks.

As the financial system reaches the level of
strength that regulations require, we hope
banks can begin to expand slightly more
rapidly (and, of course, responsibly) – both
geographically and in terms of products and
services – with the support and confidence
of their regulators. This will also foster
healthy economic growth, which we all so
desperately want.

GOOD PUBLIC POLICY IS CRITICALLY IMPORTANT

Are you worried about bad public policy?

Yes, bad public policy, and I’m not looking
at this in a partisan way, creates risk for
the economies of the world and the living
standards of the people on this planet – and,
therefore, for the future of JPMorgan Chase –
more so than credit or market risks. We have
many real-life examples that demonstrate
how essential good public policy is to the
health and welfare of a country.

East Germany vs. West Germany. After World
War II, East Germany and West Germany
were in equal positions, both having been
devastated by the war. After the war, West
Germany flourished, creating a vibrant
and healthy country for its citizens. East
Germany (and, in fact, most of Eastern
Europe), operating under different governance
and policies, was a complete disaster.
This did not have to be the case. East
Germany could have been just as successful
as West Germany. This is a perfect example
of how important policy is and also of how
economics is not a zero-sum game.

Argentina, Venezuela, Cuba, North Korea vs.
Singapore, South Korea, Mexico. These countries
also provide us with some pretty strong
contrasts. The first four countries mentioned
above have performed poorly economically.
The last three mentioned above have done
rather well in the last several decades. You
cannot credit this failure or success to the
existence of great natural resources because,
on both sides, some had these resources,
and some did not. It would take too long
to articulate it fully here, but strong public
policy – fiscal, monetary, social, etc. – made
all the difference. The countries that did
not perform well had many reasons to be
successful, but, they were not. In almost all
these cases, their government took ineffective
actions in the name of the people.

Detroit. Detroit is an example of failure at the
city level. In the last 20 years, most American
cities had a renaissance – Detroit did not.
Detroit was a train wreck in slow motion
for 20 years. The city had unsustainable finances, corrupt government and a declining
population that went from 2 million residents
to just over 750,000. It is tragic that
this catastrophe had to happen before
government started to rectify the situation.

We have reported that we are making a huge
investment in Detroit, and we are doing
this because the leadership – the Democratic
mayor and the Republican governor,
working with business and nonprofit organizations
– is taking rational and practical
action in Detroit to fix the city’s problems.
These leaders talk about strengthening the
police, improving schools, bringing jobs
back, creating affordable housing, fixing
streetlights and rehabilitating neighborhoods
– real things that actually matter and will
help the people of Detroit. They do not couch
their agenda in sanctimonious ideology.

Fannie Mae and Freddie Mac. These are examples
of poor policy at the industry and company
level. Under government auspices and with
federal government urging, Fannie and
Freddie became the largest, most leveraged
and most speculative vehicles that the
world had ever seen. And when they finally
collapsed, they cost the U.S. government
$189 billion. Their actions were a critical
part of the failure of the mortgage market,
which was at the heart of the Great Recession.
Many people spent time trying to figure
out who was to blame more – the banks and
mortgage brokers involved or Fannie and
Freddie. Here is a better course – each should
have acknowledged its mistakes and determined
what could have been done better.

So yes, public policy is critical to a healthy
and functioning economy. Now I’d like to
turn my attention to a more forward-looking
view of some of the potential risks out there
today that are driven by public policy:

Our current inability to work together in
addressing important, long-term issues. We
have spoken many times about the extraordinarily
positive and resilient American
economy. Today, it is growing stronger, and it
is far better than you hear in the current political
discourse. But we have serious issues that
we need to address – even the United States
does not have a divine right to success. I won’t
go into a lot of detail but will list only some
key concerns: the long-term fiscal and tax
issues (driven mostly by healthcare and Social
Security costs, as well as complex and poorly
designed corporate and individual taxes),
immigration, education (especially in inner
city schools) and the need for good, longterm
infrastructure plans. I am not pointing
fingers at the government in particular for our
inability to act because it is all of us, as U.S.
citizens, who need to face these problems.

I do not believe that these issues will cause a
crisis in the next five to 10 years, and, unfortunately,
this may lull us into a false sense
of security. But after 10 years, it will become
clear that action will need to be taken. The
problem is not that the U.S. economy won’t
be able to take care of its citizens – it is that
taking away benefits, creating intergenerational
warfare and scapegoating will make
for very difficult and bad politics. This is a
tragedy that we can see coming. Early action
would be relatively painless.

The potential exit of Britain from the European
Union (Brexit). One can reasonably argue that
Britain is better untethered to the bureaucratic
and sometimes dysfunctional European
Union. This may be true in the long run, but
let’s analyze the risks. We mostly know what
it looks like if Britain stays in the European
Union – effectively, a continuation of a more
predictable environment. But the range of
outcomes of a Brexit is large and potentially
unknown. The best case is that Britain can
quickly renegotiate hundreds of trade and
other contracts with countries around the
world including the European Union. Even
this scenario will result in years of uncertainty,
and this uncertainty will hurt the
economies of both Britain and the European
Union. In a bad scenario, and this is not the
worst-case scenario, trade retaliation against Britain by countries in the European Union
is possible, even though this would not be
in their own self-interest. Retaliation would
make things even worse for the British and
European economies. And it is hard to determine
if the long-run impact would strengthen
the European Union or cause it to break
apart. The European Union began with a
collective resolve to establish a political union
and peace after centuries of devastating wars
and to create a common market that would
result in a better economy and greater prosperity
for its citizens. These two goals still
exist, and they are still worth striving for.

We need a proper public policy response to
technology, trade and globalization. Technology
and globalization are the best things that ever
happened to mankind, but we need to help
those left behind. Technology is what has
driven progress for all mankind. Without
it, we all would be living in tents, hunting
buffalo and hoping to live to age 40. From
printing, which resulted in the dissemination
of information, to agriculture and to
today’s computers and healthcare – it’s an
astounding phenomenon – and the next
100 years will be just as astounding.

The world and most people benefit enormously
from innovative ideas; however,
some people, some communities and
some sectors in our economy do not. As
we embrace progress, we need to recognize
that technology and globalization can
impact labor markets negatively, create job
displacement, and contribute to the pay
disparity between the skilled and unskilled.
Political and business leaders have fallen
short in not only acknowledging these challenges
but in dealing with them head on.
We need to support solutions that address
the displacement of workers and communities
through better job training, relocation
support and income assistance. Some have
suggested that dramatically expanding the
earned income tax credit (effectively, paying
people to work) may create a healthy and
more egalitarian society. Also, we must
address an education system that fails
millions of young people who live in poor
communities throughout the United States.

The answer to these challenges is not to
hold back progress and the magic of technology;
the answer is to deal with the facts
and ensure that public policy and public
and private enterprise contribute to a
healthy, functioning and inclusive economy.

At JPMorgan Chase, we are trying to
contribute to the debate on public policy.
One new way we are doing this is through
the development of our JPMorgan Chase
Institute, which aims to support sounder
economic and public policy through better
facts, timely data and thoughtful analysis.
Our work at the Institute, whether analyzing
income and consumption volatility, small
businesses, local spending by consumers or
the impact of low gas prices, aims to inform
policymakers, businesses and nonprofit
leaders and help them make smarter decisions
to advance global prosperity.

What works and what doesn’t work.
In my job, I am fortunate to be able to travel
around the world and to meet presidents,
prime ministers, chief executive officers,
nonprofit directors and other influential civic
leaders. All of them want a better future for
their country and their people. What I have
learned from them is that while politics is
hard (in my view, much harder than business),
breeding mistrust and misunderstanding
makes the political environment far
worse. Nearly always, collaboration, rational
thinking and analysis make the situation
better. Solutions are not always easy to find,
but they almost always are there.

What doesn’t work:

Treating every decision like it is binary –
my way or your way. Most decisions are
not binary, and there are usually better
answers waiting to be found if you do the
analysis and involve the right people.

Drawing straw men or creating scapegoats.
These generally are subtle attempts
to oversimplify someone’s position in
order to attack it, resulting in anger,
misunderstanding and mistrust.

Denigrating a whole class of people or
society. This is always wrong and just
another form of prejudice. One of the
greatest men in America’s history, President
Abraham Lincoln, never drew straw
men, never scapegoated and never denigrated
any class of society – even though
he probably had more reason to do so
than many. In the same breath, some of
our politicians can extol his virtues
while violating them.

Equating perception with reality. This is a
tough one because you have to deal with
both perceptions and reality. However,
perceptions that are real are completely
different from perceptions that are false.
And how you deal with each of them probably
should differ.

Treating someone’s comments as if
they were complaints. When someone’s
response to an issue raised is “here they
go complaining again,” that reaction
diminishes the point of view and also
diminishes the person. When a person
complains, you need to ask the question:
“Are they right or are they wrong?” (If you
don’t like the person’s attitude, that is a
different matter.)

What does work:

Collaborating and compromising. They
are a necessity in a democracy. Also, you
can compromise without violating your
principles, but it is nearly impossible to
compromise when you turn principles
into ideology.

Listening carefully to each other. Make
an effort to understand when someone
is right and acknowledge it. Each of us
should read and listen to great thinkers
who have an alternative point of view.

Constantly, openly and thoroughly
reviewing institutions, programs and
policies. Analyze what is working and
what is not working, and then figure out –
together – how we can make it better.

IN CLOSING

I am honored to work at this company and with its outstanding
people. What they have accomplished during these often difficult
circumstances has been extraordinary. I know that if you could see
our people up close in action, you would join me in expressing deep
gratitude to them. I am proud to be their partner.